Sakhalin Energy wants LNG buyers to pay via Moscow-based bank, change currency

© Reuters. FILE PHOTO: A general view of the liquefied natural gas plant operated by Sakhalin Energy at Prigorodnoye on the Pacific island of Sakhalin, Russia July 15, 2021. Picture taken July 15, 2021. REUTERS/Vladimir Soldatkin

By Yuka Obayashi and Florence Tan

TOKYO (Reuters) -Russia's Sakhalin Energy Investment Co has asked its liquefied natural gas (LNG) customers to pay for supplies via a Moscow unit of a European bank, a source familiar with the matter told Reuters on Friday.

A second source said the energy company was in discussions to switch payment currencies away from U.S. dollars for supply contracts. Both sources said no changes have been made to the existing contracts.

The changes follow Russian President Vladimir Putin's June 30 decree to create a new firm to take over all the rights and obligations of Sakhalin Energy, heightening the threat of gas supply disruptions to Asian customers.

Russia has been hit by a slew of sanctions from the United States and its allies over its invasion of Ukraine in February, which it terms a "special military operation". Using other currencies and a bank within Moscow could help insulate Russia from sanctions aimed at freezing it out of financial markets.

Some buyers are already paying via the designated bank but these payments are still made in U.S. dollars, added the sources, who spoke on condition of anonymity and did not identify the bank.

There has been no update on the formation of the new company, the sources said.

Among the alternative payment currencies being discussed were the Chinese yuan, the Japanese yen and South Korean won, one of the sources said.

The yuan and the United Arab Emirates Dirham have been used by Chinese and Indian buyers to pay for Russian crude and coal.

Sakhalin Energy could not be immediately reached for comment. Its LNG buyers, Tokyo Gas and JERA, Japan's biggest power generator, declined to comment.

Tohoku Electric Power and Kyushu Electric Power confirmed they have been requested to change the bank account for payment of Sakhalin-2 LNG, and Tohoku said it has changed the account as requested. Both declined to provide any further details due to the sensitivity of the matter.

An official at the Japanese industry ministry declined to comment on the deals but said it will continue to communicate with Japanese utilities to secure a stable supply of LNG.

Sakhalin Energy is the joint venture that operates Sakhalin-2, one of the world's largest LNG projects with output of 12 million tonnes which accounts for about 4% of the world's LNG production.

State-run Gazprom (MCX:GAZP) has a 50% plus one share stake while other stakeholders include Shell (LON:RDSa) and two Japanese trading companies Mitsui & Co and Mitsubishi Corp.

The Japanese government plans to support the trading companies in their attempts to stay in the Sakhalin-2 oil and gas project. Japan imports 10% of its LNG from Russia, mainly from Sakhalin-2.

Analysts said the impact on foreign exchange markets would be small and the request likely reflects a Russian desire to cut down its dependency on the dollar for trade flows.

"Most likely Moscow just wants to move away from dollars as much as possible in everything they do," said Khoon Goh, head of Asia research at ANZ Bank in Singapore.

Another analyst did not foresee any big FX impact, saying yen payments would be the most straightforward.

Japan, a top LNG importer, relies mainly on long-term LNG contracts, which are usually much cheaper, but utilities have been forced into the spot market over the past few months to meet summer cooling demand amid above-average summer temperatures and concerns over Russian supply.